1.4 Business Needs
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Smaller businesses are more susceptible to certain losses than
larger businesses, particularly where those small businesses are
dependent on a small number of key players.
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Loss of a key employee could mean a number of practical problems
which could lead to short, medium and even long term loss of income,
profit and growth.
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Whether the business is a sole proprietor, partnership or private
limited company, death of such an employee could mean:
- Loss of profitable sales connections
- Loss of specialist knowledge
- Time and income loss whilst locating and training a replacement
- Loss of confidence of shareholders, creditors, staff, suppliers,
bank, and so forth.
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Anticipated loss of profits from such eventualities may be safeguarded
by suitable term assurance policies taken out by the company.
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A key employee may be 'lost' in a profit-related sense by sickness
or disability, in which case it may be possible to fund a suitable
short-term IPI policy to recompense the company to some degree.
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Partnership Protection may take an additional form whereby
partners complete a suitable partnership agreement, part of which
relates to disposal and purchase of shares in the event of retirement
or prior death.
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Linked to the agreement, for example, will be a suitable policy
to fund the purchase of the deceased's business share from the estate.
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Share Protection operates in a similar way, with a view
to ensuring shares on retirement or prior death go to the required
new ownership.
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Protection in the above is necessary because ownership of part
of a business by an 'outside' party may not be beneficial for a
number of reasons:
- There may be no commitment to the business.
- The new 'owner' may be willing to become involved but might
be quite incompetent.
- Ownership might pass into the hands of a competitor.
- The new owner may demand a cut of the profits but may be
unwilling or unable to participate and offer anything of value
to the business in return
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